Small business owners know the importance of a solid business plan, but when it comes to a succession plan only a third of the one in 10 Canadians with a small business have a strategy in place for when they are no longer at the helm. As a recent TD survey found, many of those who do have a succession plan say they want to eventually pass their business on to their children, but only half have actually discussed this with them.
“With so many things to think about when starting and running a small business, it’s understandable that planning for the day you step away from it isn’t always top of mind,” said Dave Kelly, Senior Vice President, Private Investment Advice, TD Wealth. “But a succession plan can help you to maximize the value of your business when you do eventually hand over the reins, and the time to set up that plan is long before you actually retire.”
Factors to consider
Kelly notes that a succession plan is more than just identifying who will take over your business – whether you transfer it to a family member or sell it to a partner, your employees or a third-party. You also need to consider factors like the tax implications of transferring your business, who will manage day-to-day operations, and how to maintain stability and preserve family harmony when bringing in a successor. This could involve having an estate equalization strategy to help ensure that all family members are treated fairly, even if they don’t take over the business.
“As a small business owner, you should talk to your family about your succession plans to make sure everyone understands what you want and why, and to find out if your family actually wants to take over the business at some point,” he said. “You should also discuss your plans with professional advisors, including a business succession advisor and your financial advisor, so they can help you structure your business and your succession plans.”
Kelly suggests small business owners set up a succession plan as early as possible and review it regularly to make sure it remains up-to-date, particularly as your business grows and to take into account significant life events that could impact these plans, including marriage or divorce, and the birth or death of family members.
Tips for business succession planning
- List your goals and priorities
Some questions to ask yourself include: When do you want to hand over the reins to your business – at retirement age, or earlier so you can pursue other business or personal interests? How important is it that someone in your family takes over the business and consider whether they would even be interested, or would you prefer to sell it? Don’t forget to include your family in these discussions.
- Assemble a team of specialist advisors
Beyond the usual list of advisors – such as financial advisors, lawyers and accountants – consider adding a family facilitator to help you navigate the details of a family business succession plan and preserve family harmony.
- Review your succession plan "action items”
Draw up a list of things to do to make your plan work, such as whether you need to change your business structure (from a sole proprietorship or partnership to a corporation, for example), what additional training or experience your chosen successor needs, and whether you need an estate equalization plan to help ensure the interests of other family members who don’t enter the business are considered.
- Develop the most appropriate plan for you
Every family business is unique, so there is no one-size-fits-all succession plan. Take the time to develop the one that’s right for your business and your family, factoring in your personal and business goals, your family situation and the specific details of your business. And once it’s in place, review it regularly and update it whenever necessary so it always meets your (and your family’s) needs.
You can find more information, tools and resources on business succession planning here.